Property Liens and Bankruptcy

If you have a lien on your property, whether you are an individual or a business, what will happen to that lien when you file for bankruptcy? The answer to the question can vary widely depending on the type of lien and the type of bankruptcy you are filing. Understanding the differences among the types of liens that can affect property in Florida can be confusing, yet it is essential to know what type of lien you are dealing with if you are hoping to resolve the debt or issue associated with the lien by filing for bankruptcy. One of the experienced West Palm Beach bankruptcy attorneys at our firm can provide you with more information, and we are here to speak with you today about any bankruptcy concerns you have.

What is a Lien? 

Before we can discuss the potential impact of different types of bankruptcy filings on property liens, it is important to understand what a “lien” is and how it works. According to the Florida Statutes, a lien “means a charge against or an interest in property to secure payment of a debt or performance of an obligation, and includes a security interest created by agreement, a judicial lien obtained by legal or equitable process or proceedings, a common-law lien, or a statutory lien.” In short, a lien gives a creditor a security interest in an asset you own. For example, a creditor could have a lien against a commercial real property you own.

There are three general kinds of liens in Florida:

• Consensual lien: This is a type of lien that a debtor enters into on a voluntary basis, usually in exchange for a loan from a creditor or a line of credit (and if the debtor defaults, the creditor can take the asset from them. There are different kinds of consensual liens.
• Statutory lien: This is a type of lien that a creditor obtains based on state or federal law — in other words, it is a type of lien that a creditor can obtain according to the Florida Statutes or to a federal law. Statutory liens are not voluntary. The two types of statutory liens are mechanic’s liens (for when supplies or work have been performed) and tax liens (placed against a debtor’s property for unpaid local, state, or federal taxes).
• Judgment lien: This is another type of lien that is not a voluntary lien but rather is obtained by a creditor through a court judgment. To obtain this type of lien, a creditor must sue a debtor for money owed, win a judgment against the debtor, and then have a lien placed against the debtor’s property.

Liens in Bankruptcy Cases

 Typically, in reorganization bankruptcies, liens are treated as secured debts and the debtor must pay off the debt owed during the course of the repayment plan to have the lien removed or lifted. In a Chapter 7 case, statutory and judgment liens may be dischargeable (depending on the precise nature of the debt), and a consensual lien can also be removed, but the creditor will be able to repossess the property associated with the consensual lien.

Contact Our West Palm Beach Bankruptcy Attorney Today 

Any individual or business entity that is considering a bankruptcy filing and has existing property liens should seek legal advice about how those liens will be impacted by a bankruptcy case. Do not hesitate to get in touch with one of the experienced West Palm Beach bankruptcy lawyers at Kelley, Kaplan & Eller to find out more about the range of business and bankruptcy cases we handle in South Florida. Contact our firm today to have your questions answered and to begin working with a lawyer on your bankruptcy case.

Sources:

law.cornell.edu/uscode/text/11

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0727/0727ContentsIndex.html